Federal Court of Australia
Aurizon Holdings Limited v Commissioner of Taxation  FCA 368
DATE OF ORDER:
8 April 2022
THE COURT ORDERS THAT:
1. The parties confer with a view to providing, within 7 days, by email to the Associate to Thawley J, appropriate orders and declarations to give effect to these reasons for judgment.
1 Aurizon Holdings Limited seeks declarations under s 39B(1A)(c) of the Judiciary Act 1903 (Cth) and s 21 of the Federal Court of Australia Act 1976 (Cth) to the effect that two of its accounts – respectively labelled “Authorised Capital” and “Capital Distribution” – are “share capital accounts” for the purpose of s 975-300(1) of the Income Tax Assessment Act 1997 (Cth) (ITAA 1997) and that they are taken to be a single share capital account in accordance with s 975-300(2). Section 975-300(1) and (2) provide:
(1) A company’s share capital account is:
(a) an account that the company keeps of its share capital; or
(b) any other account (whether or not called a share capital account) that satisfies the following conditions:
(i) the account was created on or after 1 July 1998;
(ii) the first amount credited to the account was an amount of share capital.
(2) If a company has more than one account covered by subsection (1), the accounts are taken, for the purposes of this Act, to be a single account.
Note: Because the accounts are taken to be a single account (the combined share capital account), tainting of any of the accounts has the effect of tainting the combined share capital account.
2 The Commissioner of Taxation accepts that the Authorised Capital account is a share capital account, but denies that the Capital Distribution account is a share capital account. It is common ground that neither the Authorised Capital account nor the Capital Distribution account is “tainted” (see s 197-50 ITAA 1997) with the result that sub-s 975-300(3) does not apply.
3 The principal issue in dispute is whether an amount of $4,388,252,224 credited to the Capital Distribution account was an amount of share capital. The amount was posted to the Capital Distribution account to reflect a contribution to Aurizon (then QR National Ltd) made by the State of Queensland on 19 November 2010 (State Contribution). The State Contribution was to transfer an asset to Aurizon, namely a receivable, being the debt owed to the State by a subsidiary of Aurizon, referred to by the parties as “Operations”.
4 The State Contribution was made in the context of the public flotation and ASX listing of Queensland’s coal and freight network under the name “QR National” and the sell down of the State’s interest in that business via a share offer (IPO). The State Treasurer (Treasurer) issued a direction under legislation enacted to facilitate the IPO which directed that the State Contribution was a “contribution by the State of Queensland to be adjusted against the contributed equity of [Aurizon]”. At the time of the direction, “the contributed equity of [Aurizon]” was comprised of 100 fully paid shares held by two Ministers of the State of Queensland.
5 Aurizon contends that the State Contribution was “an amount of share capital” with the result that the Capital Distribution account is a share capital account because it satisfies the criteria in one or both of s 975-300(1)(a) and (1)(b). Aurizon contends:
(a) the criterion in (a) is satisfied because the State Contribution is an amount of share capital and it should therefore be concluded that the account is one that Aurizon keeps of its share capital;
(b) further or alternatively, the Capital Distribution account was created after 1 July 1998 (para (b)(i)) and the first amount credited to the account was an amount of share capital, being the credit in respect of the State Contribution (para (b)(ii)); and
(c) because the Issued Capital account and Capital Distribution account are both share capital accounts, they together form a single share capital account in accordance with sub-sec 975-300(2).
6 The Commissioner contends that the State Contribution was not an amount of share capital. The Commissioner observed that the State Contribution was expressly made for “nil” consideration and that it was not made in exchange for the issue of any shares. The Commissioner’s position is that the State Contribution forms a part of the capital of Aurizon, in the sense that it forms part of Aurizon’s assets in excess of Aurizon’s share capital. According to the Commissioner, the State Contribution affects the value of Aurizon and, by extension, its shareholders’ equity, but it never formed part of Aurizon’s share capital.
7 For the reasons which follow, the State Contribution is an amount of share capital within the meaning of s 975-300(1) of the ITAA 1997. The term “share capital” almost invariably refers to the capital contributed to a company in exchange for shares. However, as this case demonstrates, this does not supply an exhaustive definition of share capital.
8 The contribution was made by the State, as sole shareholder, intending it to form part of the company’s share capital. The contribution was treated by Aurizon as forming part of share capital, without the requirement to issue further shares in exchange. The State Contribution is appropriately characterised as share capital.
9 On 2 June 2009, the Premier of Queensland announced that QR Limited’s “above and below rail coal” businesses would be offered for sale. QR Limited was later renamed Aurizon Operations Limited and is referred to for convenience as “Operations”.
10 Operations was the head of a corporate group known as the “QR Group” or “Queensland Rail”. The QR Group carried on a large transport and logistics business throughout Australia. All of Operations’ issued shares were held for and on behalf of the State of Queensland by Ministers of the State in their capacities as Ministers of the State. Queensland Treasury Corporation (a corporation owned by the State) (QTC) had made debt facilities available to Operations (QTC Facilities).
11 On 22 June 2009, the Infrastructure Investment (Asset Restructuring and Disposal) Act 2009 (Qld) (Infrastructure Act) was assented to and commenced. The main purpose of the Infrastructure Act was “to facilitate the restructure and disposal of particular businesses, assets and liabilities of government entities”: s 2. The disposal of the “above rail” and “below rail” businesses, assets and liabilities of Queensland Rail were “declared projects”: s 5(1)(c) and (d). Queensland Rail (defined in the Dictionary as Operations) was a “declared entity”: s 6(1)(e). It was an agreed fact that Aurizon, incorporated on 14 September 2010, was also a “declared entity”. Section 9 included:
9 Transfer notice
(1) For the purpose of a declared project, the Minister may, by gazette notice (a transfer notice), do any of the following—
(a) transfer shares in a declared entity to another declared entity or the State;
(b) transfer a business, asset or liability—
(i) of a declared entity to another declared entity or the State; or
(ii) of the State to a declared entity;
(c) make provision about the consideration for shares or a business, asset or liability transferred under paragraph (a) or (b);
12 Section 11 included:
11 Project direction
(1) The Minister may give a direction (a project direction) to a declared entity or its board requiring the entity or board to do something the Minister considers necessary or convenient for effectively carrying out a declared project.
(2) Without limiting subsection (1), a project direction may be about—
(a) forming a company for the purpose of transferring a business, asset or liability to the company; or
(b) winding up or deregistering a company; or
(c) making or executing an instrument; or
(d) making a particular decision about disposing of an interest held in a declared entity or a business, asset or liability; or
(e) making a particular decision for the purpose of returning the proceeds of a disposal mentioned in paragraph (d) to the State; or
a decision about a dividend or return of capital
(f) disclosing information.
(3) A project direction must be in writing, signed by the Minister.
(4) A declared entity must comply with a project direction given to it.
(5) A declared entity’s board must—
(a) if a project direction is given to the board—comply with the direction; or
(b) if a project direction is given to the entity—take the action necessary to ensure the entity complies with the direction.
(6) A declared entity’s employees must help the entity or board to comply with a project direction given to the entity or board.
13 The Treasurer and the Queensland Treasury were respectively the Minister and Department responsible for the Infrastructure Act.
14 On 8 December 2009, the Premier and the Treasurer announced the public flotation and listing on the ASX of Operation’s coal and freight network under the name “QR National” (the IPO) and the sell down of the State’s interest in that business via a share offer. The Premier also announced that the State would retain full ownership of QR Group’s passenger network.
15 On 30 June 2010, the QR Group was restructured. This involved the passenger and non-coal network business being transferred from the QR Group to a separate State owned corporation known as Queensland Rail Limited.
16 Allens Arthur Robinson was engaged by the State to provide legal advice in relation to both the restructure and the IPO. The State engaged a range of other advisers to develop and implement the IPO, including KPMG which provided accounting, taxation and due diligence services to the State in relation to the IPO under the terms of a consultancy agreement. The State appointed several financial institutions as the IPO’s Joint Lead Managers (JLMs) and certain banks as lead commercial advisers. Queensland Treasury was principally responsible for instructing, liaising with, and receiving advice from Allens, KPMG and the JLMs on behalf of the State.
17 KPMG and Allens advised the State as to the series of State and corporate actions that should be taken to give effect to the State’s object of disposing of between 60% and 75% of its interest in the QR Group’s coal and freight network via the IPO (the plan).
18 The plan was set out in documents prepared by KPMG and Allens on behalf of the State. From time to time the plan was varied and these variations were recorded in the documents prepared and circulated by KPMG and Allens.
19 As at 11 August 2010, the plan was set out in a document prepared by KPMG entitled “Project Thomas – discussion document: Outline of implementation steps to IPO”. On 16 August 2010, KPMG provided a revised version of the plan to Queensland Treasury. The plan included:
the incorporation and interposition of “Float Co” (namely Aurizon) between the State and Operations;
the transfer to Aurizon of the debt liability owed by Operations to QTC in exchange for a new debt from Operations to Aurizon (Step 4A);
the issue of new shares by Operations to Aurizon, to extinguish the debt owed to Aurizon arising under Step 4A (Step 4B);
the transfer to the State of the debt liability owed by Aurizon to QTC in exchange for a new debt owed by Aurizon to the State (Step 4C);
the issue of new shares by Aurizon to the Ministers of the State to extinguish the debt owed by Aurizon to the State (Step 4D).
20 If these steps had occurred, the amount contributed by the State at Step 4D would unarguably have been share capital because the shares would have been issued in exchange for the asset received by Aurizon (namely the receivable). This is not, however, what ultimately occurred.
21 The KPMG plan set out various “income tax consequences” and various “accounting consequences”. One of the “accounting consequences” was stated to be:
The transfer of the debt liability owing to QTC from QR Limited [Operations] to the State through the proposed steps results in a net increase in Float Co’s [Aurizon’s] shareholders equity and increase in Float Co’s [Aurizon’s] investment in QR Limited [Operations] equal to the carrying amount of the debt
22 Aurizon (previously known as QR National Limited) was registered on 14 September 2010. It issued 2 fully paid ordinary shares for $1 each, one to the Treasurer and one to the State Minister for Transport. The subscription price for those shares was the first amount credited to an account maintained by Aurizon in its general ledger with account number 311101 named “Authorised Capital”. This account was, plainly, a share capital account.
23 On 17 September 2010, the Treasurer issued a “Transfer Notice – Project Direction” (September Direction) pursuant to ss 9 and 11 of Infrastructure Act. This was published on 21 September 2010. The September Direction provided for the transfer of all of the issued shares in Operations from the State (one share being held on the State’s behalf by the Treasurer and the other by the Minister for Transport) to Aurizon (see s 9(1)(a) of the Infrastructure Act). The consideration for that transfer was the issue of 98 fully paid ordinary shares in Aurizon to be held in equal proportions by the Treasurer and the Minister for Transport (see s 9(1)(c) of the Infrastructure Act).
24 The September Direction also made directions to Aurizon and its Board. The September Direction provided:
1. Direct QR National [Aurizon] and its board to:
(i) in consideration for the transfer to QR National [Aurizon] of the shares in QR Limited [Operations]; and
(ii) following receipt of applications for subscription,
98 fully paid ordinary shares in QR National [Aurizon] (to be held in equal proportion by Andrew Fraser as Treasurer and Minister for Employment and Economic Development of the State of Queensland and Rachel Nolan as Minister for Transport of the State of Queensland), the amount paid up on the [sic] these shares being an amount equal to the market value of the shares in QR Limited [Operations] on the date of transfer;
25 On 20 September 2010, Aurizon’s board of directors passed resolutions in order to give effect to the September Direction.
26 On 21 September 2010, the State transferred its 100% interest in Operations to Aurizon in consideration for the issue by Aurizon of 98 ordinary shares to the State (held equally by the Treasurer and the Minister for Transport). The Treasurer and the Minister for Transport then each held 50 shares in Aurizon, because each was already the holder of one fully paid share issued on incorporation on 14 September 2010. Aurizon thus became the ultimate holding company of Operations and the QR Group on 21 September 2010. At that time Aurizon was still known as “QR National Limited” and the QR Group became part of a corporate group known as the “QR National Group”.
27 On 30 September 2010, Allens on behalf of the State, circulated by email a document entitled “Project Thomas – Pre-IPO Restructure Steps 4 – 8”. The email stated that the document set out “the proposed amended order of the step plan”. The document referred to the KPMG pre-IPO restructure plan and recorded that “[r]ecent discussions and events have led to a proposed refinement of those steps” and asked for comments on the “proposed refinements of the structure”. The so-called “refinements” included a new Step 4 which included that Aurizon would complete a share-split of its existing 100 shares “into the number it expects to have on completion of the offer”. The stated reason for the introduction of new Step 4 was:
We think it would be preferable if the shares being offered for sale in the Offer Document exist at the time that the Offer is launched. This simplifies disclosure in the Offer Document as it does not need to be explained that the shares have not yet been issued but will be prior to settlement.
28 The document proposed a new Step 6 (comprising two steps):
• Step 6A: QR Limited [Operations] transfers a portion of the debt it owes to QTC to QR National [Aurizon] via a transfer notice in return for a new debt owed by QR Limited [Operations] to QR National [Aurizon]. QR Limited’s [Operations’] debt is extinguished in return for an issue of shares by QR Limited [Operations] to QR National [Aurizon]. The amount of the debt transferred will be equal to $4.3bn less cash at close of the Offer.
• Step 6B: QR National [Aurizon] transfers all of the debt it owes to QTC to (the State) via a transfer notice in return for NIL consideration with a corresponding adjustment in QR National’s [Aurizon’s] accounts credited to equity. The amount of the debt transferred to (the State) will be equal to $4.3bn less cash at close of the Offer.
29 The “discussion” set out in the document concerning Step 6 refers to the “amount of debt forgiven” (being a reference to the State Contribution of about $4.3 billion).
30 These “proposed refinements of the structure” result in there being no shares issued in exchange for the State Contribution. Rather, the “refinements” result in an amount “credited to equity”.
31 Mr John Frazer gave evidence by affidavit. He was not cross-examined. He was the Executive Director within the Commercial Transactions Team of Queensland Treasury being the team responsible for the planning and implementation of the IPO. His evidence was to the effect that, both before and after the change to the steps which flowed from the Allens’ memorandum, he understood that “the arrangements in respect of the QTC Debt would result in an increase in the equity of QR National [Aurizon]”. He referred to the “accounting consequence” set out in the KPMG document and the crediting to equity referred to in the Allens’ document. He noted that “KPMG’s taxation advice” did not change as a result of Allens’ proposed amendments to the step plan. So far as the evidence discloses, KPMG had not given taxation advice concerning whether the amount of the State Contribution was “share capital” within the meaning of the ITAA 1997. Mr Frazer’s understanding was that the State Contribution was to result in an increase in the contributed equity of Aurizon. Mr Frazer did not give evidence of any understanding that the State Contribution would constitute share capital.
32 On 3 October 2010, the Treasurer issued a “Project Direction” pursuant to s 11 of the Infrastructure Act, entitled “QR National Limited [Aurizon] – Share split”. This directed Aurizon and its board to procure that each share issued by Aurizon be converted into 24.4 million ordinary shares with the result that Aurizon’s share capital was converted from 100 ordinary shares to 2,440,000,000 ordinary shares.
33 On 5 October 2010, Allens (on behalf of the State) circulated a “revised step plan” entitled “Project Thomas – Document and signing checklist for IPO implementation steps”. In relation to Step 6B, the document provided the following overview:
Overview – FloatCo’s [Aurizon’s] debt to QTC is transferred to the State via a transfer notice in exchange for a new debt owed by FloatCo [Aurizon] to the State. FloatCo’s [Aurizon’s] debt to the State is transferred for nil consideration with a corresponding adjustment in FloatCo’s [Aurizon’s] accounts credited to equity.
34 On 6 October 2010, Aurizon caused the 100 fully paid ordinary shares issued by Aurizon to be converted into 2,440,000,000 ordinary shares.
35 On 8 October 2010, the QR National Share Offer Document” was issued. It recorded that the “total number of shares on issue” was 2,440,000,000. The Offer Document contained a “pro forma historical consolidated balance sheet as at 30 June 2010” which, in relation to “Liabilities” and “Equity” included:
As presented in the 30 June 2010 financial statements
Tax effect of the Offer
36 The proforma historical balance sheet shows the effect of the State Contribution on the balance sheet of Aurizon as if that proposed transaction had taken place as at 30 June 2010. The effect is to reduce the indebtedness of Aurizon by $4,266 million and increase contributed equity by that amount. Adjustments required by other proposed transactions (set out in [8.2.5] of the Offer Document) reduced the increase in contributed equity from the State Contribution of $4,266 million to $4,007 million.
37 On 15 November 2010, the Treasurer issued a “Transfer Notice – Project Direction” (November Direction) pursuant to sections 9 and 11 of the Infrastructure Act. This was published in the Gazette on 16 November 2010. The November Direction made various transfers and directions and also contained a “designation” (at ).
38 First, the Treasurer directed that the indebtedness under relevant QTC facilities be fixed: November Direction at  and . Pursuant to this direction, on 17 November 2010, Operations caused steps to be taken (with effect from 19 November 2010) so that the aggregate indebtedness under the relevant QTC Facilities as at midnight on 18 November 2010 was $4,388,252,224 (the QR Debt), with any excess indebtedness under the QTC Facilities transferred to a new “QTC Working Capital Facility” entered into by Operations with QTC on 18 November 2010.
39 Secondly, the Treasurer transferred to the State of Queensland the indebtedness of Operations to QTC such that: (a) the State of Queensland became indebted to QTC rather than Operations; and (b) Operations owed the State of Queensland an amount equal to the QR Debt (the “Receivable”): November Direction at  and . The transfer of debt occurred on 19 November 2010. The balance of the QR Debt transferred, and therefore the amount of the Receivable created, was $4,388,252,224.
40 Thirdly, the Treasurer transferred the State of Queensland’s right, title and interest in the Receivable to Aurizon such that the indebtedness of Operations pursuant to the Receivable was owed to Aurizon: November Direction at . The transfer of the Receivable to Aurizon is the “State Contribution”.
41 Of central importance to this proceeding, the November Direction contained the following in relation to the Receivable or State Contribution:
In anticipation of an initial public offering of the business of QR Limited [Aurizon] and its subsidiaries through the sale of shares in QR National [Aurizon] as part of the Project, I, Andrew Fraser, Treasurer and Minister for Employment and Economic Development pursuant to Sections 9 and 11 of the Infrastructure Investment (Asset Restructuring and Disposal) Act 2009, hereby:
6. Provide that the consideration provided for transfer of the Receivable from the State of Queensland to QR National [Aurizon] is nil.
7. Designate the transfer of the Receivable from the State of Queensland to QR National [Aurizon] to be a contribution by the State of Queensland and to be adjusted against the contributed equity of QR National [Aurizon].
42 The minutes of the meeting of the directors of Aurizon of 17 November 2010 included:
2. QR Limited Receivable
It was noted that the State of Queensland would transfer to the Company [Aurizon] the State’s rights, title and interest in a receivable owing by QR Limited [Operations] to the State of Queensland equal to the indebtedness of QR Limited [Operations] to Queensland Treasury Corporation which is transferred from QR Limited [Operations] to the State of Queensland (the Receivable).
The Company [Aurizon]:
(a) is to recognise the transfer of the Receivable from the State of Queensland to the Company [Aurizon] as a contribution of equity from the State of Queensland to the Company [Aurizon] in accordance with AASB Interpretation 1038; and
(b) the intention is that the impact of the transfer of the Receivable to the Company [Aurizon] and the subscription for shares in QR Limited [Operations] should be reflected within the Company’s accounting records as:
CR Contributed Equity
43 Aurizon gave effect to paragraph (b) of the directors’ resolution by creating a separate account within its accounting system (account 311105 (Capital Distribution)) in the financial year ended 30 June 2011.
44 It is relevant to draw attention to the reference in paragraph (a) of the resolution to AASB Interpretation 1038 and to the word “designate” used in paragraph 7 of the November Direction. Interpretation 1038 addresses “contributions by owners made to wholly-owned public sector entities”. Australian Accounting Standard AASB 1004 Contributions requires contributions by owners and distributions to owners to be recognised directly in equity. AASB 1004 defines contributions by owners as:
future economic benefits that have been contributed to the entity by parties external to the entity, other than those which result in liabilities of the entity, that give rise to a financial interest in the net assets of the entity which:
(a) conveys entitlement both to distributions of future economic benefits by the entity during its life, such distributions being at the discretion of the ownership group or its representatives, and to distributions of any excess of assets over liabilities in the event of the entity being wound up; and/or
(b) can be sold, transferred or redeemed.
45 The “consensus” expressed in Interpretation 1038 includes:
8. Regardless of the other features or conditions of a transfer, the transfer is a contribution by owners where its equity nature is evidenced by any of the following:
(a) the issuance, in relation to the transfer, of equity instruments which can be sold, transferred or redeemed;
(b) a formal agreement, in relation to the transfer, establishing a financial interest in the net assets of the transferee which can be sold, transferred or redeemed; or
(c) formal designation of the transfer (or a class of such transfers) by the transferor or a parent of the transferor as forming part of the transferee’s contributed equity, either before the transfer occurs or at the time of the transfer.
46 Paragraph 8(a) refers to “equity instruments” which includes such things as shares. Paragraph 8(b) refers to a “formal agreement” which can be sold, transferred or redeemed; and paragraph 8(c) refers to a “formal designation”. A “formal designation” does not give rise to an instrument as such. Nevertheless, Interpretation 1038 contemplates that an equity interest created by a “formal designation” can be “redeemed” notwithstanding that the equity contributed by “formal designation” is not reflected by the issue of an instrument. Paragraph 13(c) explains that a transfer can be classified as a “distribution to owners” when its “equity nature” is evidenced by a “formal designation of the transfer (or a class of such transfers) as a redemption of an ownership interest in the transferor”. Paragraph 13 of the “Consensus” provides:
Consistent Classification of Distributions to Owners as Redemptions of Ownership Interests
13. A transfer classified by the transferor as a distribution to owners shall be classified by the immediate transferee as a redemption of part or all of its ownership interest in the transferor when and only when its equity nature is evidenced by any of the following:
(a) the cancellation, in relation to the transfer, of equity instruments which can be sold, transferred or redeemed;
(b) amendment of a formal agreement, in relation to the transfer, to reduce the transferee’s financial interest in the net assets of the transferor which can be sold, transferred or redeemed; or
(c) formal designation of the transfer (or a class of such transfers) as a redemption of an ownership interest in the transferor, made by the government or a government-controlled parent of the transferee, either before the transfer occurs or at the time of the transfer.
47 Various paragraphs of the “Discussion” in Interpretation 1038 reveal that a “formal designation” is intended to reflect an ownership interest capable of redemption and thus one which should be recognised directly in equity (emphasis added):
Evidence that Transfers are Contributions by Owners
Issuance of Equity Instruments, or an Ownership Agreement
22. One form of evidence that a transfer is a contribution by owners is the issuance of equity instruments in relation to the transfer. Equity instruments may be shares, equivalent ownership instruments (for example, units of contributed equity in a non-corporate entity such as a trust), or debt instruments (or components thereof) that fail the definition of “financial liabilities” and accordingly are classified as equity under AASB 132 Financial Instruments: Presentation.
23. This Interpretation adopts the view that the issuance of equity instruments in relation to a transfer is not essential for the transfer to qualify for recognition as a contribution by owners.
24. Another form of evidence that a transfer is a contribution by owners as defined in paragraph 18 is an agreement in relation to the transfer setting out the respective ownership interests of equity contributors. In substance, the existence of such an agreement is the same as the issuance of equity instruments, because it specifies the respective interests of the various owners of the transferee’s contributed equity.
Designation as Contributions by Owners
25. Designation of a transfer as a contribution by owners by the original transferor, the government or another entity interposed between the original transferor and the ultimate transferee is sufficient for a wholly- owned public sector transferee to classify the transfer as a contribution by owners, if that transfer is not made as consideration for the provision by the transferee of assets or services at fair value to the transferor. However, designation would be insufficient if the transferee is not wholly owned by the transferor or its controlling government. In these circumstances, either the issuance of equity instruments, or the existence of an agreement setting out the respective ownership interests of equity contributors, in relation to the transfer would be necessary for the transfer to be a contribution by owners. This is because where a minority interest exists, these actions are necessary to specify the respective interests of the various owners of the transferee’s contributed equity.
Financial Interest in the Net Assets of the Entity which can be Sold, Transferred or Redeemed
28. Part (b) of the definition of contributions by owners in paragraph 18 refers to transfers that “give rise to a financial interest in the net assets of the entity which … can be sold, transferred or redeemed”. If the transferee is a wholly-owned subsidiary of the transferor or a parent of the transferor or that parent will almost invariably possess rights of redemption.
30. Because any transfer by a parent to its wholly-owned subsidiary (other than a transfer made as consideration for the provision by the transferee of assets or services at fair value to the transferor) has the potential to satisfy the definition of contributions by owners in paragraph 18, this Interpretation adopts the view that it is necessary to refer to the form of the transfer to determine whether it should be classified as a contribution by owners. Accordingly, if the transferee neither issues equity instruments nor is a party to an agreement setting out the respective ownership interests of equity contributors, in relation to the transfer, formal designation that the transfer is to be added to the transferee’s contributed equity is necessary to identify contributions by owners (except in relation to government controlled not-for-profit entities or for-profit government departments involved in restructures of administrative arrangements).
Mode and Timing of Designation of Transfers as Contributions by Owners
31. Designation of transfers as contributions by owners may occur in a variety of ways which include, but are not limited to, a minute of a decision by the governing body of the contributor, correspondence to the transferee, legislation, administrative orders, and allocation statements, directions or bulletins issued by or on behalf of relevant ministers, each of which specifies that the transfer (or a class of such transfers) is to be added to the transferee’s contributed equity. In each case, designation of the transfer or class of transfers is made by the transferor (or a parent of the transferor), because the distinction between an entity’s contributed equity and its other components of equity (such as retained earnings and certain reserves) is at the discretion of its owners.
48 Interpretation 1038 does not govern the legal position of what occurred. Rather, its significance for present purposes is that the Treasurer clearly had Interpretation 1038 in mind when making the November Direction. It is to be inferred from the language used in paragraph 7 of the November Direction (in particular the word “designate” and the words “adjusted against the contributed equity”), and from the reference to Interpretation 1038 in the resolution made by the board on 17 November 2010 in compliance with the November Direction, that the State intended its contribution to be an equity contribution as owner, capable of redemption. The State was not intending to make a gift of $4.3b to Aurizon.
49 Aurizon recorded the State Contribution (the Receivable) in its accounts by posting entries to its general ledger in its accounting system on 31 December 2010 with an effective date of 19 November 2010. It recorded a credit to the Capital Distribution account in the amount of the $4,388,252,224.
50 Fourthly, the Treasurer directed that Aurizon subscribe for so many shares in Operations as was necessary for the subscription price for those shares to set off the Receivable. On 19 November 2010, Aurizon subscribed for 5.2 billion additional shares in Operations, with the subscription amount set off against the Receivable then owing by Operations to Aurizon resulting in the discharge of the Receivable.
51 Paragraph 10 of the November Direction summarised the effect of some of the earlier paragraphs of the November Direction, in particular the State’s “additional investment” in Aurizon and Aurizon’s additional investment in Operations:
10. Direct that the resultant outcome of the above is that the liability owed by QR Limited [Operations] to Queensland Treasury Corporation will be assumed by the State and an additional investment will be reflected by the State in QR National [Aurizon], and that QR National [Aurizon] will also reflect an additional investment in QR Limited [Operations] as a result of the subscription of additional shares in QR Limited [Operations] and the consideration due by QR National [Aurizon] on subscription to be satisfied by the legal offset of that liability against the Receivable due to it by QR Limited [Operations].
52 On 22 November 2010, the IPO was completed and Aurizon’s shares were listed for trade on the ASX.
53 Aurizon’s primary case was that the State Contribution was property contributed by the State in its capacity as shareholder, not by way of loan or gift, with the result that it was necessarily share capital. Aurizon submitted that any money or property contributed by a member, in that capacity, to a company is share capital, except if it is made by way of loan or gift. For this broad proposition, it relied on: Archibald Howie Pty Ltd v Commissioner of Stamp Duties (1948) 77 CLR 143 at 159 (Williams J); Cable & Wireless Australia & Pacific Holding BV (in liq) v Commissioner of Taxation  FCA 78; (2016) 110 ACSR 616 at  (Pagone J) (Cable & Wireless trial) and the cases referred to at ; Cable & Wireless Australia & Pacific Holding BV (in liq) v Federal Commissioner of Taxation  FCAFC 71; (2017) 251 FCR 483 at - (Allsop CJ, Middleton and Beach JJ) (Cable & Wireless appeal); Gower & Davies Principles of Modern Company Law (10th ed, Sweet & Maxwell, 2016) at [11-1]-[11.2]; National Mutual Life Association of Australia Ltd v Federal Commissioner of Taxation  FCAFC 96; (2009) 177 FCR 539 at  (Finn and Sundberg JJ); Ford Austin & Ramsay’s Principles of Corporations Law (17th ed, LexisNexis, 2018) at [17-100]; Kellar v Williams  2 BCLC 390 at 395;  UKPC 4 (Lord Mackay); Palmer’s Company Law (UK) (Electronic ed, Thomson Reuters) at [4.022].
54 Aurizon’s alternative case was put in different ways in written and oral submissions. The substance of the submission ultimately put was that the State Contribution was sufficiently connected to, or capable of being regarded as consideration for (or as “adjusting” the consideration for), the earlier issue of the 100 fully paid shares (alternatively the 98 fully paid shares) in Aurizon as to qualify the State Contribution as share capital.
55 The Commissioner contended that share capital is that which is subscribed in exchange for shares: the State Contribution was not made in exchange for shares and was not therefore share capital.
56 The Commissioner contended that the character of the State Contribution was to be determined primarily from the plain language of paragraph 6 of the November Direction, which provided that the consideration for transfer of the Receivable (the State Contribution) was nil.
57 According to the Commissioner, the transfer of the Receivable was not a transaction relating to Aurizon’s share capital; the better view was that the State Contribution formed part of the capital of Aurizon in the sense described by Williams J in Archibald Howie and Pagone J in Cable & Wireless trial. It formed part of the assets in excess of Aurizon’s share capital that affect the value of the company and, by extension, its shareholders’ equity.
58 The Commissioner also submitted that the State Contribution could properly be characterised as a gift.
Discussion of the cases
59 In Archibald Howie, the appellant company (Archibald Howie) returned capital to two of its shareholders pursuant to a resolution for reduction of capital. It did so by distributing in specie paid-up shares in other companies at the values of those shares as recorded in Archibald Howie’s books. The book value of the shares, calculated together, was a little more than 70 per cent of the actual value. The central issue on the appeal to the High Court was whether the in specie transfers of shares to Archibald Howie’s shareholders were made upon a “bona fide consideration in money or money’s worth” and, if so, whether the consideration was less than or not less than the unencumbered value of the property. If the former, it was assessable to duty under s 66(3A) of the Stamp Duties Act 1920-1940 (NSW) and, if the latter, under 66(3B).
60 Dixon J held that there were two aspects of the transaction in which the shareholders received adequate consideration in the sense contemplated and that s 66(3B) applied. The two aspects were, his Honour observed, perhaps two sides of the same thing. In explaining the first aspect, his Honour observed at 152-3 (emphasis added):
The reduction involving the payment off of part of the paid up share capital must therefore be considered an effectuation of a provision of the contract of membership. The allotment of the share and the payment up of the liability thereon conferred upon the holder for the time being of the share a right to have the assets of the company used and applied in the various ways in which the articles expressly or impliedly require or authorize and this is one of them. It is an effectuation or realization of the rights obtained by the acquisition of the share in the same way as is the distribution of a dividend. The consideration given is the payment up of the share capital in satisfaction of the liability for the amount of the share incurred on allotment.
61 In explaining the second aspect, his Honour said at 153:
From the standpoint of company law the division of the capital of a company into shares and the payment up of shares issued are regarded as respectively significant and real. The shareholder contributes the amount of the share to the capital of the company. This contribution measures his right to any return of capital which the company may make either as a going concern or in a winding up. Subject to any regulation the articles may make as to the basis upon which assets in excess of share capital may be distributed, the amount of the share determines the proportion in which he shares with other shareholders in a distribution of excess assets.
A company obtains capital by the issue of its shares. These shares cannot be issued at a discount but may be issued subject to the payment of their nominal amount or at a premium. The amount payable may be satisfied by the payment of money or by some other proper consideration. But all shares must be paid for in full by money or money’s worth. When the person to whom the shares are allotted pays or assumes the liability to pay for the shares in money or money’s worth, full consideration in money or money’s worth moves from him to the company for all the rights which he acquires under the memorandum and articles of association.
The capital of a successful company is usually represented by assets which, after providing for the claims of creditors, exceed in value the amount of the paid up capital.
(1) at 157, in the first sentence set out above (at ), to refer to “share capital”; and
(2) at 159, in the sentence set out immediately above (at ), to refer to the net value of a company’s assets or, in his Honour’s words, the “assets which, after providing for the claims of creditors, exceed in value the amount of the paid up capital”.
65 Rich J agreed with the judgments of both Dixon and Williams JJ: at 150.
66 Contrary to Aurizon’s submission, the observations of Williams J at 159 were not intended as a statement of principle that a company’s share capital includes any money or property contributed to a company by a member in that capacity not made by way of loan or gift.
67 The Commissioner placed particular emphasis on the passages in the judgments of Dixon J (at 152-3) and Williams J (at 157) in submitting that “share capital” is that which is paid in exchange for the shares or, in the language of Dixon J, “in satisfaction of the liability for the amount of the share incurred on allotment”. It must be accepted that such amounts are share capital, but it must also be recognised that their Honours were not addressing the question whether an amount contributed to a company, otherwise than by way of a loan or a gift, is share capital even if it is not contributed in exchange for shares. Archibald Howie was not concerned with a situation such as the present, namely the classification of an amount paid to a company by its sole shareholder, expressed to be for “nil consideration” and not in exchange for a new issue of shares, but which was to be adjusted to the contributed equity of the company, that contributed equity at the time being constituted only by share capital.
68 In Cable & Wireless trial at , Pagone J stated:
The capital contributed to a company is not the same as the equity in the company. In Archibald Howie Pty Ltd v Commissioner of Stamp Duties (NSW) (1948) 77 CLR 143 Williams J observed at 159:
The capital of a successful company is usually represented by assets which, after providing for the claims of creditors, exceed in value the amount of paid up capital.
Assets and liabilities of a company will affect its value and, therefore, will affect the equity which a shareholder has in a company. Its share capital, in contrast, is the amount contributed by shareholders in respect of their shares: see Trevor v Whitworth (1887) 12 App Cas 409, 423; Guinness v Land Corporation of Ireland (1882) 22 Ch D 349, 375; and Re The Swan Brewery Co Ltd (1976) 3 ACLR 164, 166; see also Gower and Davies’ Principles of Modern Company Law (2012) 9th edition, Sweet & Maxwell, 272. In Archibald Howie Pty Ltd Dixon J (with whom Rich J agreed) explained the significance of share capital as follows at 153:
From the standpoint of company law the division of the capital of a company into shares and the payment up of shares issued are regarded as respectively significant and real. The shareholder contributes the amount of the share to the capital of the company. This contribution measures his right to any return of capital which the company may make either as a going concern or in a winding up. Subject to any regulation the articles may make as to the basis upon which assets in excess of share capital may be distributed, the amount of the share determines the proportion in which he shares with other shareholders in a distribution of excess assets.
The accounting by Optus of the share buy-back transaction reflected the distinction between its capital and the equity of its shareholders …
69 Aurizon placed particular emphasis on the following sentence contained in that passage and, in particular, the phrase “in respect of”:
Its share capital, in contrast, is the amount contributed by shareholders in respect of their shares.
70 Senior Counsel for the applicant submitted that this was a deliberate choice of words, intended to reflect that share capital is not limited to that which is paid in exchange for shares, but extended to any money or property contributed by a shareholder as shareholder that was not a loan or a gift.
71 It is unlikely that the words were deliberately chosen for the reason the applicant suggests. First, that question was not one which was raised in Cable & Wireless trial. Secondly, that question was not raised in any of the cases to which Pagone J referred. Thirdly, the expression of the principle in Swan Brewery to which Pagone J referred is more narrowly stated, yet his Honour apparently accepted that case as accurately stating the relevant test. In Swan Brewery at 166, Gillard J considered “share capital” was the “capital raised by the company from the issue of its shares”; the expression “issued share capital [means] the money or money’s worth derived from the issue by directors of shares in order to raise capital”. The issue in the present case was not raised Swan Brewery.
72 In St George Bank Ltd v Federal Commissioner of Taxation  FCAFC 62; (2009) 176 FCR 424 at , Perram J (with whom Emmett and Stone JJ agreed) cited Swan Brewery for the proposition that the “capital of [a] company is the money or money’s worth derived by the company from the issue of shares”. The issue in the present case was not raised.
73 The Commissioner emphasised that, in Cable & Wireless appeal at , the Full Court affirmed Pagone J’s distinction at  between the “[a]ssets and liabilities of a company [which] will affect its value and, therefore, will affect the equity which a shareholder has in a company” and “[i]ts share capital … [being] the amount contributed by shareholders in respect of their shares”. The parties referred also to what the Full Court stated at  and :
… [B]efore proceeding further it is necessary to be clear about what is meant by “capital” or “shareholders’ capital”. In the present context, we are concerned with share capital rather than other commercial contexts such as working capital. As explained by Gower and Davies’ Principles of Modern Company Law (9th edition by Paul Davies and Sarah Worthington) at [11-1], in the present context, “capital” connotes the value of the assets contributed to the company by those who subscribe for its shares; we are not, of course, here dealing with the market value of shares. We have emphasised the “value” of what is contributed, as it is this concept rather than the assets themselves (say subscription money) that is being referred to; it may also be appropriate to describe this in terms of the “amount of the share(s)” so contributed (see for example, Archibald Howie Pty Ltd v Commissioner of Stamp Duties (NSW) (1948) 77 CLR 143 at 153 per Dixon J). The assets will change their form, indeed may be disposed of or lost. But this is not a reduction of capital as such. Likewise, the company may create or acquire new or enhanced assets through, for example, trading profitably, borrowing money from a third party or asset revaluation. But this is not share capital as such in that form. Moreover, a share capital account is not as such an asset account.
The concept of “capital” as used in the present context is also to be distinguished from “equity”. The concept of “equity” usually describes a surplus of assets over liabilities. It is not the same as capital. So, in the present case, for Optus in the year ending 31 March 2002, total equity equalled net assets. Total equity itself can be divided into components. So, for Optus for the year in question, it was divided into “contributed equity”, “reserves” and “retained profits (accumulated losses)”. But the only component of total equity referable to “capital” or “shareholders’ capital” was “contributed equity”. And, as we have indicated earlier, the debit on the buy-back reserve account was not in form or in substance a charge on contributed equity. It was never seen as such commercially or economically by any of the (highly sophisticated) relevant participants (the complete opposite to the scenario in Consolidated Media).
74 Although lengthy, it is useful to set out the whole of [11-1] of Gower (9th ed) referred to by both Pagone J at  and the Full Court at  (for present purposes it is not necessary to refer to the more recent edition). The paragraph is the first in Chapter 11 – Meaning of Capital (emphasis added):
In the previous two chapters we saw how the law applies sanctions to the controllers of companies who abuse the facility of limited liability. In particular, personal liability for the company’s obligations and disqualification from being involved in the management of a company in the future are techniques used by the law in these cases. Both are ex post techniques, i.e. the sanctions are applied after the company has fallen into insolvency. Both sanctions are applied on the basis that the court has concluded that the controllers have infringed some broad and general standard laid down for the assessment of their conduct, for example, engaging in “wrongful” trading or dis playing “unfit” conduct. In this chapter and the next two, by contrast, we consider ex ante approaches to the abuse of limited liability, i.e. setting rules which apply before the company is in insolvency or even in the region of insolvency. The legal mechanisms discussed in these chapters take as their starting point the fact that, where limited liability operates, the creditors’ claims are confined to the assets of the company, but also that, in relation to the company’s assets, the claims of creditors have priority over the expectations of share-holders. Consequently, the techniques now discussed seek to ensure that the shareholders contribute to or maintain in the company an appropriate level of assets. By virtue of the creditors’ priority over shareholders, these shareholder-contributed assets will be the first t bear losses if the company trades unsuccessfully. A good level of shareholder-contributed assets, it can be argued, will both reduce the chances of the company falling into insolvency on the grounds that it is unable to pay its debts as they fall due and increase the chances of the creditors’ being repaid if insolvency does occur. This idea can be given expression in a number of ways, which will be explored in these chapters. It will be seen, as well, that this policy is given effect mainly through detailed rules rather than through broad standards.
The traditional protective mechanism of company law in this area which is as old as limited liability itself, involves laying down rule about the raising and maintenance of “capital”. “Capital” is a word of many meanings, but in company law it is used in a very restricted sense. It connotes the value of the assets contributed to the company by those who subscribe for its shares. By and large, the value of what the company receives from investors in exchange for its shares constitutes its capital.2 One talks about the value of what is received, rather than the assets themselves, because those assets will change form in the course of the business activities of the company. If the company receives cash in exchange for its shares, the directors will turn that cash into other types of asset in order to promote its business: indeed, if they did not, they would probably be in breach of duty.
2 In Kellar v Williams  2 B.C.L.C. 390, the Privy Council accepted that it was possible for an investor to make a capital contribution to a company, other than in exchange for the purchase of shares, in which case the contribution is to be treated in the same way as a share premium (see below, para.11-8). Such a procedure is very unusual, of course, since the contributor is left substantially in the dark as to what he or she is getting in exchange for the contribution. However, one can see that an existing shareholder in a company wholly controlled by him might act in this way. The difficulty is to distinguish between such a capital contribution and a loan to the company.
The value of the assets which the company receives in exchange for its shares (its legal capital) will normally be less than the total value of the company’s assets. Even where the company has not yet begun to trade, it may have raised money in ways other than share issues. For example, it may have borrowed money from a bank or a group of banks, which loan contributes to the company’s cash assets. The value of such loans does not count towards its legal capital, however. This is because the aim of the capital rules is to protect creditors as a class and only assets contributed by shareholders do this effectively. The cash provided by the lender will be exactly counterbalanced by an increase on the liabilities side of the company’s balance sheet, so that the creditors as a whole are no better off. Once a company has begun trading and if it has done so profitably, it will have assets which represent the profits made (assuming these have not been distributed to the shareholders). These, too, do not count as part of the company’s legal capital: they may have been earned, at least in part, by deploying the shareholders’ contributions to the business but the profits were not contributed by the shareholders. Nevertheless, in business parlance the surplus of the assets over the liabilities is often referred to as “the shareholders’ equity”, on the ground that it could be distributed to them. By contrast, if the company trades unsuccessfully, it may run through any profits made in previous years and begin to eat up the assets contributed by long-term lenders and its shareholders. In this situation its net asset value (assets less liabilities) may fall below the value of its legal capital. In short, the value of the assets contributed by the shareholders (its legal capital) is a figure which may deployed as the basis of certain corporate law rules; it is not a measure of the company’s net worth, which may be higher or lower and only rarely and by chance will it have the same value as the company’s legal capital.
75 The Commissioner emphasised the use of the phrase “in exchange for its shares” in the first sentence of the last paragraph of [11-1]. That sentence must, however, be read in the context of what the authors had previously stated, namely that the assets received by a company in exchange for its shares was “by and large” that which constituted the company’s share capital (or legal capital). Footnote 2, at the end of that sentence, states that “the Privy Council [in Kellar] accepted that it was possible for an investor to make a capital contribution to a company, other than in exchange for the purchase of shares, in which case the contribution is to be treated in the same way as a share premium”. The authors used the words “by and large” to indicate their view that some contributions might be share capital even if those contributions were not made in exchange for shares.
76 The critical facts in Kellar were as follows. Mr Kellar and Mr Williams decided to establish a company, Sunrise. It was agreed that Mr Williams would be the major shareholder. It was also agreed that Mr Kellar would provide the funds for Sunrise, but there was no clear agreement as to whether the funds so provided were to be made by way of a loan or as a contribution of capital.
77 Sunrise went into administration. Mr Kellar commenced proceedings in the Supreme Court of the Turks and Caicos Islands (TCI) seeking directions as to the proper treatment to be accorded by the Official Liquidator to the funds paid to Sunrise. The Chief Justice of the Supreme Court ruled against Mr Kellar at first instance and Mr Kellar appealed to the Court of Appeal of the TCI. The effect of the decisions of both the Supreme Court and the Court of Appeal was to reject Mr Kellar’s claim that the monies paid to Sunrise comprised loans repayable to him and to accept Mr William’s contention that the amounts were paid to Sunrise as “capital contributions”.
78 At the hearing, Mr Kellar contended that the primary facts found by the Chief Justice and the Court of Appeal should have led to the conclusion that the monies provided to Sunrise were repayable to him on demand, to the extent that they were not necessary for preserving the solvency of Sunrise and enabling it to meet the company’s debts to its creditors. The Privy Council rejected that argument, holding that it was bound by the factual findings made by the Chief Justice and the Court of the Appeal of the TCI that the monies paid to Sunrise by Mr Kellar were not by way of a loan:  2 BCLC 390 at 395;  UKPC 4 at -.
79 That conclusion was sufficient to dispose of the appeal. Nevertheless, their Lordships briefly addressed an argument which had been advanced in Mr Kellar’s written submissions. That argument was that the Supreme Court and Court of Appeal had erred in holding that the funds paid to Sunrise were “equity or capital contributions”, because the company law of the TCI did not recognise the concept of a payment made to enhance the capital of a company, being neither a subscription for shares nor a gift to the company, and which did not create any obligation on the company to repay the money or entitle the payor to recover the funds as a debt or in some other way:  2 BCLC 390 at 394;  UKPC 4 at .
80 Lord Mackay of Clashfern, giving the judgment of the Committee (which included Lord Browne-Wilkinson and Lord Millett) said at  2 BCLC 390 at 395,  UKPC 4 at :
The contention of the appellant in his written case, which as their Lordships have noted was not pressed at the oral hearing, cannot be given effect. If the shareholders of a company agree to increase its capital without a formal allocation of shares that capital will become like share premium part of the owner’s equity and there is nothing in the company law of the Turks and Caicos Islands or in the company law of England on which that law is based to render their agreement ineffective.
81 The applicant submitted that this passage should be understood as concluding that the contribution should be treated in the same way as share premium and that share premium was treated as being share capital. Contrary to the applicant’s submission, I read that passage as meaning that the contribution in that case formed a part of owner’s equity, just as share premium is a part of owner’s equity. The amount was not considered to be share capital.
82 Kellar was considered in The Commissioners for HM Revenue and Customs v Alan Blackburn Sports Limited  EWCA Civ 1454. Blackburn concerned the availability of relief under the Enterprise Investment Scheme (“EIS relief”) and the operation of the Taxation of Chargeable Gains Act 1992 (UK). In summary, the question was whether charges arising on capital gains could be deferred in respect of shares allotted by the Company to Mr Blackburn between September 1998 and January 2001. Mr Blackburn had a long history of paying cash to the company and receiving shares in return. Sometimes, however, the shares were allotted after payment at a time when there was no application to, resolution by, or agreement with, the Company that shares would be allotted in return for the money or at all. The Special Commissioner rejected an argument, in relation to an amount of £96,000 contributed by Mr Blackburn, that he was informally applying for shares and concluded that the payment of money at a time when there was no application or agreement for the allotment of shares must have amounted to the making of a loan, and that the subsequent allotment of shares could not therefore attract EIS relief: at .
83 At first instance, Peter Smith J allowed Mr Blackburn’s appeal against the decision of the Special Commissioner on the ground that the Special Commissioner had been wrong to accept the contention that, in the cases where the money had been paid before there was a resolution or agreement to allot shares, the money had been advanced as a loan. Peter Smith J followed the decision of the Privy Council in Kellar and concluded that, in such cases, the payment should be characterised as a contribution to the capital of the Company and not as a loan: Blackburn v The Commissioners for HM Revenue and Customs  EWHC 266 (Ch) at .
84 The Court of Appeal dismissed the Revenue’s appeal from this decision. Lord Neuberger of Abbotsbury (with whom Sedley and Wilson LLJ agreed) concluded that, when Mr Blackburn paid the amount of £96,000, he intended that the payments would be reflected by the allotment of 96,000 shares in the Company and that the money was a payment into the capital account of the Company, conditionally on 96,000 shares being allotted to Mr Blackburn: at , . Lord Neuberger stated:
 … Accordingly, as I see it, the payments totalling £96,000 were made and accepted in circumstances in which it is right to infer that Mr Blackburn was “agreeing to take [96,000] shares” to quote Wynn-Parry J in Governments Stock  1 WLR 237, 242, and the Company was agreeing to allot him 96,000 shares.
85 Lord Neuberger continued (emphasis added):
 … [U]nless precluded by some legal principle, I consider that the proper characterisation of the arrangement was that the £96,000 was paid by Mr Blackburn to the Company, and accepted (and spent) by the Company on the clear mutual understanding, indeed implied agreement, that the Company would allot 96,000 shares to him …
 Two possible problems with this conclusion have to be considered. The first is that it may be said that the Company could not be compelled to issue shares; the second is that there is no basis as a matter of principle for treating the payments as anything other than loans.
 It is unnecessary to decide whether the Company could have been compelled to allot 96,000 shares to Mr Blackburn once it had accepted the £96,000. Unless there was a technical company law reason why it could not have been so compelled, it seems to me that it could have been. However, assuming that it could not have been so compelled, then, if it had refused to allot any shares to him, the £96,000 would, I think, have been recoverable by Mr Blackburn. But this would not be because the money had been a debt throughout; it would be because the money would have been paid for a consideration which, as it transpired, had failed, or because it had been paid in anticipation of an event which had not occurred. Once the Company had refused to allot the shares, the £96,000 would become repayable, and, at that point, I would have thought that it could well be characterised as a debt, but not until that point.
 If that is right, I can see no reason why the payments totalling £96,000, when they were made, should nonetheless have to be characterised as loans or debts, as a matter of law, simply because they were paid to a limited company. It was suggested that a limited company cannot effectively accept capital contributions other than in the form of loan capital or share capital. Even if that suggestion was, in general, correct, I cannot accept that it would extend so as to prevent a company from accepting and holding money on the basis that it is bound (or at least entitled) as against the payer, to allot shares to him in return for the payment (with the possibility of having to repay the money if the shares are not then allotted).
 In any event, I severely doubt that there is any reason in terms of principle, authority or practice for accepting that suggestion. In practical terms, I find it impossible to see, for instance, why a company should not be able to treat a gift as a contribution to its capital. As to authority, far from there being any case which confirms the suggestion, the Privy Council in Kellar  2 BCLC 390, 395 indicated precisely the opposite. Lord Mackay of Clashfern, giving the judgment of the Committee (which included Lord Browne-Wilkinson and Lord Millett) said that “there was nothing in the law of the Turks and Caicos Islands or in the company law of England” which prevented giving effect to an agreement between “the shareholders of a company … to increase its capital without a formal allocation of shares”. In such an event, he said, such capital would “become like share premium part of the owner’s equity”. So far as principle is concerned, I do not see why the fact that accountancy convention may make it difficult to decide how to record a particular type of payment in the Company’s accounts means that, as a matter of law, the payment cannot be characterised as being of that type. While accountancy convention has an important part to play in some areas of tax law and company law, this would, I think, be a case of the tail wagging the dog.
86 At the time Kellar was decided, so far as the company law of England was concerned, a distribution by a company of share premium was, absent legislative intervention, regarded as profit available for distribution rather than share capital which would have been subject to the maintenance of capital rules: Drown v Gaumont-British Picture Corporation Ltd  Ch 402. The effect of the decision in Drown was that, when companies issued shares at a premium (above their nominal value), the share capital was the nominal par value of the shares and, if issued at a price above par, the excess was not “capital” and constituted part of the distributable surplus which the company could return to the shareholders by way of dividend. Section 56 of the Companies Act 1948 (UK) was enacted to remedy this situation. Its operation was described in In re Duff’s Settlements; National Provincial Bank Ld v Gregson  Ch 923 at 926 –928. Jenkins LJ, reading the judgment of the Court, referred to Drown in terms which accepted it was correctly decided: at 926. His Lordship described s 56 of the Companies Act 1948 (UK) as not converting share premium into share capital, but requiring that share premium to be treated as share capital (for most purposes): at 928. Section 56 of the Companies Act 1948 was the predecessor to s 130 of the Companies Act 1985 (UK) which was the provision applicable when Kellar was decided.
87 It is not necessary to decide whether it is correct, but the weight of Australian authority is to the effect that share premium (when it existed) was a component of share capital, even absent legislation deeming it to be such: Coca-Cola Amatil Ltd; Ex parte Coca-Cola Amatil (1998) 44 NSWLR 343 at 344F, 347B, 347E-F (Santow J); Quatro Ltd v Argo Investments Ltd  VSC 171; (1999) 32 ACSR 239 at  (Hansen J). Santow J in Coca-Cola referred to Drown (at 345B, in terms which indicate that his Honour considered it to be incorrectly decided) and to the legislative response, including legislation which treated share premium “as if” it were share capital, and stated at 347E:
Normally, it is true, the expression “as if”, as Kitto J pointed out, in Union Fidelity Trustee Co of Australia Ltd v Commissioner of Taxation (Cth) (1969) 119 CLR 177 at 187, connotes a “hypothesis different from the actual fact”. But that is not necessarily so where what is thus assimilated to paid up share capital is already of that nature.
88 Earlier in his reasons at 345, Santow J extracted a passage from Gower’s Principles of Modern Company Law (1997) Sweet & Maxwell, London at 243:
Section 56 [of the Companies Act 1948 (UK) (repeated in s 130 of the Companies Act 1985 (UK))] was introduced to overcome the practice of utilising the share premium as a distributable surplus; this it did by requiring the share premium account to be treated “as if the share premium account were paid up capital of the company”. Such distribution had been allowed — dubiously I suggest — in Drown v Gaumont-British Picture Corporation Ltd  Ch 402. Gower’s Principles of Modern Company Law (1997) Sweet & Maxwell, London at 243 recounts that history. It expresses justified ridicule at the arbitrary division between par and premium subscription amounts which underlay that early decision:
“Prior to 1948, when companies issued shares at a premium (that is, at above their nominal value), the premiums were treated totally differently from share capital. Share capital was regarded as determined by the nominal par value of the shares; if they had been issued at a price above par the excess was not ‘capital’ and, indeed, constituted part of the distributable surplus which the company, if it wished, could return to the shareholders by way of dividend. (Drown v Gaumont-British Corporation  Ch 402.) This was ridiculous. If the price paid for the shares was £100,000, the true capital of the company was £100,000 and it should have made no difference to the company or to the shareholders whether the £100,000 was obtained by issuing 100,000 £1 shares at par or by issuing 10,000 £1 at £10. This absurdity, however, was mitigated by section 56 of the 1948 Act, now replaced by section 130 of the 1985 Act. This provides that a sum equal to the aggregate amount or value of the premiums shall be transferred to a ‘share premium account’ which, in general, has to be treated as if it were part of the paid-up share capital (s 130(1) and (3)). But, anomalously, it is still necessary to refer expressly to both, and for the company, in its annual accounts and reports, to distinguish between them. What, if it were not for arbitrary par values, would be a single item — capital — has to be treated as two distinct items, albeit for most purposes treated identically.”
89 This diversion has only been necessary because the applicant submitted that the decisions in Kellar and Blackburn supported its formulation of the relevant principle (set out at  above) and, it was accordingly desirable to understand how share premium was treated at the time of those decisions. Neither judgment confirms the applicant’s broad statement of principle. Rather, the judgments in Kellar and Blackburn both accept, by way of obiter dictum, that a shareholder of a company may make a non-loan capital contribution to a company without issuing shares:
In Kellar at 395, the obiter dictum was that, “[i]f the shareholders of a company agree to increase its capital without a formal allocation of shares that capital will become like share premium part of the owner’s equity”. The capital contribution in Kellar was found to be neither a loan nor a gift.
In Blackburn at  and , Lord Neuberger concluded that a capital contribution could be made by a shareholder to a company which was neither loan capital nor share capital. His Lordship gave the example of a gift. If a gift were made it would “become like share premium part of the owner’s equity”. Contrary to the submissions advanced by counsel for the applicant, this is not a statement that the gift would be share capital; it is a statement that the gift would be part of “owner’s equity”. It is implicit in the reasoning, if not express, that a gift of capital would not be share capital. Such a conclusion is unsurprising. Lord Neuberger was doubting the proposition that a capital contribution by a shareholder could only be one of loan capital or share capital. His Lordship was not concluding that a gift would be share capital.
90 Contrary to the applicant’s submission, neither case states that a capital contribution by a shareholder, as a shareholder, which is neither a loan nor a gift, is share capital. Both cases conclude that a capital contribution, not made in exchange for shares, would form part of “owner’s equity” (or shareholders’ equity). In Kellar, the capital contribution was neither a gift nor a loan, nor share capital. The capital contribution formed a part of owner’s equity. The hypothetical gift of capital referred to in Blackburn was not share capital, but would form part of “owner’s equity”.
91 The issue which the present case raises was not the issue raised in either Kellar or Blackburn. Whilst, contrary to the applicant’s submission, neither of those cases endorse the applicant’s statement of principle, neither of those cases necessarily deny that a contribution from a shareholder not made in exchange for shares can, in particular circumstances, constitute share capital. For reasons indicated earlier and also below, the State Contribution in the present case is not a gift. The proper characterisation of a non-loan capital contribution, not being a gift, necessarily depends on precisely what occurred. Such a contribution forms part of shareholders’ equity, but whether it does so as share capital is a different question.
92 As noted earlier, the applicant contended that its statement of principle (set out at  above) was supported by the decision of Finn and Sundberg JJ in National Mutual Life at . That case also does not support the principle for which the applicant contends. The facts may be simplified for present purposes as follows. National Mutual’s wholly owned UK resident subsidiary, NMUK, acquired NMSLAL: at . The businesses of NMUK and NMSLAL were merged. Under a scheme of arrangement, National Mutual agreed to contribute surplus funds from its No 6 statutory fund (a UK fund owned by National Mutual). This capital contribution was to the shareholders’ funds of NMSLAL: at , [5(b)], ). The amount of the contribution was not credited to NMSLAL’s share capital account: at . The amount of the capital contribution was found by Finn and Sundberg JJ to be “reflected in the embedded value of NMSLAL and that of NMUK and in the value of shares and the shareholders’ equity in NMUK”: at . Contrary to the applicant’s submission, none of this involves a conclusion that the contribution was share capital.
93 The case concerned the question whether the capital contribution to shareholders’ funds formed part of the reduced cost base of National Mutual’s shares in NMUK which it had sold for a loss. Section 160ZH(3) of the Income Tax Assessment Act 1936 (Cth) provided that the reduced cost base to a taxpayer of an asset was the sum of various things, including:
(c) the reduced amount of any expenditure of a capital nature incurred by the taxpayer to the extent to which it was incurred for the purpose of enhancing the value of the asset and is reflected in the state or nature of the asset at the time of disposal of the asset;
94 Finn and Sundberg JJ stated:
 Section 160ZH(3)(c) applied to intangible as well as tangible property: see . The shares in question here are intangibles. In Archibald Howie 77 CLR at 152-153 Dixon J said:
While a shareholder has not a proprietary right or interest in the assets of an incorporated company, his “share” is after all an aliquot proportion of the company’s share capital with reference to which he has certain rights …
The shareholder contributes the amount of the share to the capital of the company. This contribution measures his right to any return of capital which the company may make either as a going concern or in a winding up. Subject to any regulation the articles may make as to the basis upon which assets in excess of share capital may be distributed, the amount of the share determines the proportion in which he shares with other shareholders in a distribution of excess assets.
 His Honour then referred to the facts of the case, which involved a reduction of capital by way of a distribution in specie, and continued (at 153-154):
The direct allocation of assets for distribution in reduction of the amount of the shares is doubtless within [the relevant section of the Companies Act]. But that means that the shareholder in satisfaction of his proportionate “interest” in the assets, an interest consisting of a congeries of rights in personam, takes an aliquot part of the assets.
 In Pilmer v Duke Group Ltd (in liq) (2001) 207 CLR 165 at  the High Court pointed out that the abolition of the concept of par value and of authorised capital effected by the Company Law Review Act 1998 (Cth) requires some modification to Farwell J’s well-known and much approved description of a share in Borland’s Trustee v Steel Brothers & Company Ltd  1 Ch 279 at 288. Justice Dixon’s description of a share is unaffected by the legislative change, though that of Williams J in Archibald Howie 77 CLR at 156, describing a share as the interest of a shareholder measured by a sum of money, is no longer apt.
 It is clear from the passages quoted at  that a shareholder’s rights derived from the shares extend to a proportionate share of capital contributions in excess of what used to be called the par value of the shares on the distribution of that excess.
 The taxpayer contends that given the character of a share as a bundle of contractual rights, the question under s 160ZH(3)(c) is whether the capital contribution was at the time of the sale of the shares reflected in the state of the contractual rights represented by the shares. The answer, according to the taxpayer, is that the expenditure was a contribution to shareholders’ funds. The rights embodied in the shares reflected the quantum of those funds from time to time. At the time of disposal of the shares the capital contribution was still available for distribution to the shareholder of NMUK pursuant to the rights which comprised the shares. Accordingly the state of the contractual rights was at the time of the expenditure, and remained until the disposal of the shares, enhanced and improved by the expenditure. Thus the expenditure was reflected in the state or nature of the shares at disposal.
 This alternative argument should also be accepted. Having regard to the legal nature of a share as described in the authorities, the inevitable consequence of the finding that at the time of the sale the expenditure was reflected in the shareholder’s equity in NMUK is that it was reflected in the state or nature of the shares in NMUK. We accept the taxpayer’s submission that if the expenditure was reflected in the shareholder’s equity, it must also be reflected in the state or nature of the very rights which are the source of that equity. The shares themselves and the rights inhering in them (including the shareholder’s equity) were not separate rights or interests. The authorities show that the rights derived from a share are embodied within the share. A share is incapable of legal description save by reference to what it represents: the rights and interests its holder derives from it. If, as the primary judge found, the expenditure was reflected in the shareholder’s equity, it is reflected in the state or nature of the rights which are the source of the equity.
95 Contrary to the submissions advanced by counsel for the applicant, none of this can be read as concluding that the capital contribution was share capital. The conclusion was the opposite: the capital contribution was not share capital: at . Finn and Sundberg JJ clearly distinguished between shareholders’ equity and share capital. Their Honour concluded that the amount remained available for distribution: at . Contrary to the submissions advanced by the applicant this finding cannot sensibly be read as having been intended to mean that the amount was available to be returned to shareholders as share capital under a share buyback.
96 National Mutual recognises that a capital contribution can be made without it being made in exchange for shares. Contrary to the applicant’s submission, the reasoning in National Mutual does not contain a conclusion, or assume, that such a contribution is share capital. On the facts in National Mutual, the amount was not credited to the share capital account; and, as a contribution to shareholders’ funds, it formed part of shareholders’ equity. Nevertheless, National Mutual does not deny that a capital contribution, not made in exchange for shares, might be share capital in particular circumstances.
Was the State Contribution a contribution of share capital?
97 Understandably, the Commissioner emphasised that paragraph 6 of the November Direction expressly stated that the consideration for the State Contribution was “nil”. Paragraph 6 must, however, be read in the context of the whole document, in particular, with paragraph 7. It must also be read in the context of the known background leading to the November Direction.
98 In providing that “the consideration provided for transfer of the Receivable [the State Contribution] from the State of Queensland to QR National [Aurizon] is nil”, paragraph 6 was making clear that the State Contribution was not a loan and that it was a contribution in respect of which further shares would not be issued.
99 In “designating” the State Contribution to be “a contribution by the State of Queensland and to be adjusted against the contributed equity of QR National [Aurizon]”, paragraph 7 of the November Direction confirms that the State Contribution was intended to augment the existing contributed equity. When the November Direction was made “the contributed equity” of Aurizon comprised only share capital. I infer that the word “designate” was used in paragraph 7 by reason of the terms of Interpretation 1038. This inference is supported by the board resolution of 17 November 2010, which implemented the November Direction, which expressly referred to Interpretation 1038. The “designation” makes clear that the contribution was not intended as a gift; it was intended to be redeemable despite no new equity instruments in fact being issued in exchange for the contribution – see the discussion at  to  above. The fact that the contribution was to be “adjusted against the contributed equity”, then constituted only by share capital, suggests that the contribution was intended to be to share capital despite no new shares being issued.
100 Assessed objectively, against the known background events and earlier transactions, the State Contribution was intended to be an equity contribution by the sole shareholders of the fully paid ordinary shares on issue, namely by the two Minister shareholders for the State. The contribution was not intended as a gift. By the time the State Contribution was made, the 100 shares had been split into 2,440,000,000 shares. The “designation” made by paragraph 7 of the November Direction was intended to reflect that the State was making a capital contribution as 100% shareholder, being a contribution which should be reflected in the accounts of Aurizon as adjusting the ordinary shares on issue, those ordinary shares comprising the whole of what was then “the contributed equity”. The equity contribution was intended to be share capital and is properly characterised as share capital. The account in which the State Contribution was recorded was an account of Aurizon’s share capital.
101 The following considerations also favour the probability that the State Contribution was intended to comprise share capital:
(1) First, the original plan had contemplated that the State Contribution would be made in exchange for shares. The State Contribution would have been share capital had this occurred. The evidence does not suggest that it was intended to make a significant change to what was then contemplated to be Aurizon’s share capital when floated. Rather, the intention behind the alteration to the transaction steps was simply to ensure that the correct number of shares existed at the time the Offer Document was issued rather than after that time. At best, the evidence suggests a failure on the part of relevant advisers to notice or appreciate that the alteration to the structure proposed by Allens created the potential problem that the State Contribution would not be share capital, but not an intention on the part of anyone that the contribution not be share capital.
(2) Secondly, the Offer Document suggests that the State Contribution was intended to be share capital. As shown at  above, the Offer Document stated that, as a result of the restructure, the “contributed equity” would increase by $4.007b, from $2.067b to $6.074b. The amount of $2.067b referred to as “contributed equity” was share capital. The amount of $4.007b was also referred to as “contributed equity”. Nothing in the Offer Document suggested that the amounts of $2.067b and $4.007b were different from each other in character. The ordinary reader of the Offer Document would have assumed that the total share capital after restructure would be $6.074b.
(3) Thirdly, if the amount is not share capital, then the amount can be returned to shareholders without the limitations on return of capital provided in Part 2J.1 of the Corporations Act 2001 (Cth). In other words, two thirds of the “contributed equity” which had been referred to in the Offer Document could be returned to shareholders without restriction. The evidence did not suggest that the State Contribution was made in the way it was to side-step restrictions on the return of share capital. The Offer Document did not suggest that two thirds of the “contributed equity” could be returned to shareholders without restriction. Nor did any other document in evidence, either before or after the IPO. Further, the amount has not been treated as distributable to shareholders without the limitations on return of capital provided in Part 2J.1.
(4) Fourthly, neither the evidence nor common-sense discloses any good or proper reason for intending that the State Contribution be something other than share capital. It is unlikely that it was intended for the State Contribution not to comprise share capital so as to avoid the limitations on return of capital.
102 Both parties relied on the manner in which the applicant accounted for the State Contribution after completion of the IPO. The Commissioner argued that Aurizon drew a distinction between the transactions which involved the allotment of shares in the company, recorded in the Authorised Capital account, and the State Contribution, recorded in the Capital Distribution account. A distinction was drawn, but it is a distinction that would be expected. An entity can have more than one account of its share capital. The State Contribution was not posted to the “Authorised Capital” account because no shares were being issued in exchange for the contribution. There is nothing unusual about recording the transaction in a different account in these rather peculiar circumstances. The question is whether that different account is also a share capital account which depends upon the proper characterisation of the contribution.
103 Each party sought to derive assistance from Aurizon’s published financial reports. Limited assistance is gained from these, but I will address one as an example. Immediately after the completion of the IPO, the consolidated balance sheet in Aurizon’s Half Year Report for the period ended 31 December 2010 recorded contributed equity in the amount of approximately $6.1 billion. The note relating to contributed equity included a section titled “Movements in ordinary share capital” (note 11(c) of the Half Year Report), which refers to the 98 ordinary shares that were issued to the State on 21 September 2010. The State Contribution is not included in the “Movements in ordinary share capital”. Rather, it appears under “Other contributed equity” in note 11(b) and is described as “Capital contributions from State on retirement of borrowings”. There is nothing unusual about this given the unusual preceding circumstances. The facts were that: (a) shares were not issued in exchange for the State Contribution; and (b) the State Contribution was to be “adjusted against the contributed equity”. The question is simply whether the State Contribution, as “contributed equity”, was share capital. For the reasons given, it was.
104 The Commissioner submitted that the Court should decline declaratory relief because there was an alternative and more appropriate remedy that was available to the applicant. The Commissioner referred to Knowles v Secretary, Department of Defence  FCA 1328 at , referring to Dranichnikov v Minister for Immigration and Multicultural Affairs  HCA 26; (2003) 197 ALR 389 at ; see also CSL Australia Pty Ltd v Minister for Infrastructure and Transport  FCAFC 10; (2014) 221 FCR 165 at  per Allsop CJ (with whom Mansfield J agreed); Rahman v Commissioner of Taxation  FCA 1128 at ; Tooth & Co Ltd v Council of the City of Parramatta (1955) 97 CLR 492 at 498 per Dixon CJ (with whom McTiernan, Webb, Fullagar and Kitto JJ agreed).
105 According to the Commissioner, the appropriate remedy was for Aurizon to seek a private ruling from the Commissioner and, in the event that it did not agree with that ruling, to bring proceedings under Part IVC of the Taxation Administration Act 1953 (Cth) (TAA). In this regard, the Commissioner referred to Deputy Commissioner of Taxation v PM Developments Pty Ltd  FCA 1886; (2008) 173 FCR 247 at . The Commissioner submitted that Aurizon had not identified any reason why relief under Part IVC in relation to a private ruling was not available.
106 In Commissioner of Taxation v Futuris Corporation Limited  HCA 32; (2008) 237 CLR 146 at , the plurality (Gummow, Hayne, Heydon and Crennan JJ) observed that the existence of the statutory mechanism for review of assessments by the Administrative Appeals Tribunal and “appeal” to the Federal Court had the result that, “as a matter of discretion, relief under ss 75(v) [of the Constitution] and 39B [of the Judiciary Act 1903 (Cth)] may be (and often will be) withheld”. The plurality cited Glennan v Commissioner of Taxation  HCA 31; (2003) 77 ALJR 1195 at - and referred to the authorities collected in Re McBain; Ex parte Australian Catholic Bishops Conference  HCA 16; (2002) 209 CLR 372 at . The implicit reasoning for that conclusion in Futuris is that the legislature has enacted a statutory regime facilitating challenges to the excessiveness of an assessment and, absent some good reason, that process should be followed.
107 The observations made in Futuris at  were directed to the existence of review and appeal rights in relation to objection decisions concerning the excessiveness of assessments. In the present case, there was no relevant assessment and the only course which the applicant otherwise could have taken was to seek a private binding ruling and then to pursue review or appeal rights under Part IVC.
108 The object of the statutory regime for private binding rulings is to provide a way for taxpayers to find out the Commissioner’s view about how certain laws administered by the Commissioner apply to the taxpayer so that the risks to the taxpayer of uncertainty when self-assessing or working out tax obligations or entitlements are reduced: s 357-5(1) of Sch 1 TAA. The resulting ruling might be binding on the Commissioner in relation to the particular taxpayer (here, Aurizon), but not others (for example, Aurizon’s shareholders): s 357-60 TAA. The private ruling regime is a useful regime. It is not a regime which is particularly well suited to dealing efficiently with the present case. For one thing, it would have been, to say the least, difficult to identify with any certainty the relevant facts upon which the ruling would be made. As the course of these proceedings has shown, it was only shortly before the hearing that the parties were able to agree a number of relevant facts. Certain facts were only perceived to be relevant, and made the subject of evidence, during the course of the hearing. Secondly, any appeal would have been confined to the facts as put in the ruling application. If there had been a Part IVC appeal from a ruling, it is likely that the facts in the private binding ruling application would have been shown to be wrong in some respect with the result that the whole process would likely miscarry and need to start again. Thirdly, third parties (Aurizon’s shareholders) have an interest in the issue being resolved in a way which binds the Commissioner and this is not achieved through a private binding ruling. The Court should not decline relief on discretionary grounds.
109 Both the Authorised Capital account and the Capital Distribution account were at the relevant time, and are, accounts which Aurizon keeps of its share capital. The Court will hear from the parties as to the precise form of the declarations which should be made.